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Politics Hinders Ramaphosa's Bid to Rouse S. African Economy

(Bloomberg) -- Politics is tying the hands of South African President Cyril Ramaphosa as he weighs policy trade-offs needed to rejuvenate a moribund economy.

The labor union leader-turned businessman took office a year ago, shortly after winning control of the ruling African National Congress by a razor-thin margin. With a large party faction remaining loosely aligned to his predecessor Jacob Zuma, Ramaphosa’s political control remains tenuous. He is due to announce the government’s policy program and priorities in his second state-of-the-nation address on Thursday.

While Ramaphosa’s ascent to power initially boosted confidence and the rand after repeated policy missteps during the almost nine-year tenure of Zuma, indexes tracking sentiment have retreated as reforms fell short of businesses’ expectations. The government’s decision to entertain the option of seizing land without compensation has been particularly damaging, even though it could help the ANC win over voters who may have backed the populist Economic Freedom Fighters in May elections.

“The African National Congress is a brake on Ramaphosa doing what needs to be done,” because he doesn’t have a clear backing from the party’s decision-making structures, Ivor Sarakinsky, a senior lecturer at Johannesburg’s Wits School of Governance, said by phone. “He’ll have to navigate his way around on an issue-by-issue basis and carefully.”

Ramaphosa can point to some successes -- he’s replaced the boards and top managers of state companies that have been dogged by corruption allegations, finalized new rules to provide certainty to the mining industry and convinced several local and international companies to back his drive to secure $100 billion in new investment.

Challenges Remain

Yet major challenges remain, including trimming a bloated cabinet, resolving the land-seizure debate without unduly spooking investors, taking unpopular steps to fix Eskom Holdings SOC Ltd., the state power utility which is on the verge of collapse, and following through on the ANC’s resolution to implement a national health insurance scheme. Business confidence declined in January and is yet to gain meaningful momentum under Ramaphosa.

The president said Tuesday the government will announce a plan for Eskom within days, pledged to ensure that land reform will be done in a responsible manner and undertaken to reduce the number of cabinet ministers after the vote. Fixing the power utility will be a test for Ramaphosa with the Congress of South African Trade Unions, a key alliance partner for ANC, having said it would oppose a move to split the company into separate units.

Eskom expects a loss of around 20 billion rand ($1.5 billion) for the year through March and has about 419 billion rand of debt.

His televised speech is due to begin at 7 p.m. in Cape Town.

‘Strong Hand’

Ramaphosa’s ability to act decisively would be much enhanced should the ANC perform well in the elections, according to George Herman, chief investment officer at Citadel Investment Services. The party has won every election outright since the first multiracial one in 1994.

“Where we stand, on a precarious level of economic growth, with a slowdown of economic growth in the global economy, we need a dedicated, committed, focused government to lead us through this phase,” Herman said. “We need Mr. Ramaphosa to have a strong hand.”

Ramaphosa will need to implement measures that require “some pain” up front, with the benefits only materializing down the line, according to Sanisha Packirisamy, an economist at Momentum Investments.

If he secures a strong mandate from the electorate, he can start implementing reforms reasonably soon “even though he might not be there in the presidency to bear the fruits once they actually starts to manifest in higher growth,” she said.